Home purchase financing despite high interest rates?

The question is now. If we can already pay off the remaining debt after 10 years, do we then also have to pay the interest that we would pay with a calculated term of 22 years?

No, you pay the interest annually on the money that has not yet been repaid. If you are finished after 10 years, you do not suddenly pay an interest surcharge for a hypothetical 22 years. How is that even supposed to work?

It is such an exotic idea that contradicts the basic concept of building savings, so that this product is not known to me in practice.

Not only the basic concept, but also the business model. The customer should not benefit too much from the low loan interest rates, which is why there is a high and rapid repayment of the building loan.

We had calculated with a loan of €230,000 at 3.47% and a 20-year term.
Since we don’t want to pay off over 30 years and thus theoretically pay a third of the amount in interest to the bank, we increased the equity and now only need a loan of €150,000.

How long you pay off primarily depends on the combination of loan interest and initial repayment rate. Google says that this could roughly be a 2% initial repayment, roughly estimated for a 30-year repayment?

If you contribute more equity but still set the initial repayment to 2%, you will have a low monthly payment, but the term will remain similar in length. I don’t know exactly whether that happened here or not, but it seems somewhat like that?

If you look at your building savings offer: apparently, you can afford a higher monthly payment. Ask your broker or your bank to provide you with a proposal featuring a higher initial repayment (for example, 3% or 4% initial repayment for comparison or even more). Then your monthly rate will be higher, but the term will be proportionally shorter. So consider what might be a reasonable middle ground for you between the amount of the monthly payment and the term. (Alternatively, you could keep the payment low but arrange the option to make a special repayment once a year; this has a similar effect. Many people, however, do not make use of this option as much as planned...)

By the way: it is called initial repayment because with an annuity loan (which is what you had with the long term) you gradually repay more over time. The loan rate remains the same over the entire term and at the beginning you pay 3.47% interest on the entire sum and, say, initially about 2% repayment. In the second year, however, you no longer have to pay interest on the entire amount (since you have already paid down part of it), but only on the remaining amount. Since your rate stays the same, the portion you repay with each payment becomes larger. (For example, if your rate is €700, during your very first payment about €436 would be interest and €264 repayment. At the tenth payment, the interest is only about €430 and thus the repayment €270. It doesn’t sound like much, but becomes more noticeable over the years and after about 8-9 years in this example you repay more with each installment than you pay in interest.)

Why am I telling you this? Isn’t it irrelevant in the end? On the one hand: this effect is greater the higher you fix your initial repayment (because you repay more and the ratio shifts more quickly in your favor). On the other hand: because this is an effect you don’t have with the building savings construct, where the interest can be very misleading. Usually, one part is a loan, which initially is not repaid at all for years (bullet loan). During that time, you keep paying interest on the full amount. Instead of repaying, this portion is paid into a building savings contract, which usually only has low saving interest. Only when enough is saved in the building saver, the first part is redeemed and only then can you benefit from the lower loan interest rates of the building saver. Until then, you have paid high interest on the full amount for a long time, which would not have been the case with an annuity loan. And then the question is whether you ever get that back. Therefore, you really have to calculate carefully whether this is worthwhile and not be misled by the low loan interest rates of the building saver.

Why do I only now see that the post is no longer that new and the request was from someone else. Well, my novel has already been sent, oops.

Why am I only now seeing that the post is not so new anymore and the inquiry was from someone else. Well, my novel is already sent, oops.

However, it was quite a helpful novel, which will hopefully help one or the other here.

In our case, an additional building savings contract still made sense, but we also had the following special situation: Our property was financed through the Z15 loan and there we had the issue that no special repayments were allowed and the first year was also interest-only (I don’t know if the conditions are still like that). So it made sense, of course, to build up a building savings contract with the additional money. Meanwhile, the money is of course poorly remunerated, but in return, we can repay our loan in 4-6 years at 1.50%...

From my experience, a building savings contract makes the most sense for the bank, as they receive a considerable commission. At the same time, you pay a considerable closing fee, which you have to earn back first. Moreover, you first have to be able to afford to save up a building savings contract over a long period alongside the actual loan, and continuously at that. It is better, as already suggested here, to increase the initial repayment. Alternatively, you save the money and, if possible, make special repayments. After 10 years at the latest, this is definitely possible.

Furthermore, there is always the risk of a financing gap with the building savings contract. It is not guaranteed that the loan will actually be available at the desired time. Under certain circumstances, you may have to bridge the gap for several months at a very high interest rate. These are all things that are often kept quiet.